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Okta shares plunge as CEO says ‘short-term challenges’ will cause high employee turnover

Okta Inc. shares plunged in extended trading on Wednesday after executives revealed the software company was facing problems stemming from the integration of Auth0’s $6.5 billion acquisition.

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Management raised its full-year earnings guidance again on Wednesday, but kept its full-year earnings target the same. “There are some short-term challenges,” Okta CEO and co-founder Todd McKinnon told MarketWatch in an interview after the results were announced.

“There are a lot of things going really well, but the results have been mixed,” he said.

One of the challenges was the difficulty of combining Okta’s sales force with the salespeople it acquired when it acquired identity platform Auth0 (pronounced “Auth Zero”) in May 2021. .

These challenges seem to be accelerating the revolving door for Okta, which develops software that allows authorized employees to access applications on corporate networks. McKinnon said on a conference call that turnover is now higher than normal, about 20% from his usual 15%, and that if the integration had to be redone, growth would have slowed more slowly.

During the conference call, McKinnon emphasized to investors that the various sales organizations have only been integrated for about six months, and that these challenges are factored into the outlook.

Okta Chief Financial Officer Brett Tighe said by phone: “A secondary part of the cuts was related to higher wear and tear, resulting in lower than expected production capacity throughout the year.”

Tighe also acknowledged that the issue could affect long-term forecasts.

“Given the near-term outlook coupled with the uncertainty of the evolving macro environment, we are currently reassessing our FY2026 targets,” Tighe said.

Okta’s shares fell nearly 12% in after-hours action after Wednesday’s results were announced, gaining 0.3% to close at $91.40. Like the S&P 500 index SPX, the stock has fallen 59.2% so far this year.
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decreased by 16.4%.

Okta lost $210.5 million ($1.34 per share) in the second quarter, compared with a loss of $276.7 million ($1.83 per share) in the year-ago quarter. Adjusting for stock-based compensation expense and other items resulted in a loss of 10 cents per share, compared with his loss of 11 cents per share in the same period last year. Earnings increased from his $315.5 million in the same period last year to his $451.8 million.

Analysts expected a loss of 31 cents per share on sales of $430.7 million, based on the company’s forecast of a loss of 31 cents to 32 cents per share on sales of $428 million to $430 million. We were forecasting an adjusted loss of cents.

Okta’s management maintained its full-year earnings guidance of $1.81 billion to $1.82 billion and lowered its adjusted loss guidance to a range of 70 cents to 73 cents per share. share. Analysts surveyed by FactSet had expected an adjusted loss of $1.11 per share on earnings of $1.82 billion.

For the third quarter, Okta executives expected an adjusted net loss of 24 cents to 25 cents per share on sales of $463 million to $465 million. On average, analysts expected an adjusted loss of 28 cents per share on sales of $464 million, according to FactSet.

In Wednesday’s interview, Okta leaders also spoke about the ongoing hack named “Oktapus,” in which hackers used the Twilio Inc. TWLO compromise.
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Intercept Okta one-time passwords used for multi-factor authentication. This follows an unrelated hack Okta uncovered in January, which the company determined he was “not critical” by March.

“The relevant thing is that there is no delay this time,” McKinnon told MarketWatch. “They used his Okta login page as a phishing target. We are the industry leader, so people try to phish the leader.”

“What makes this look unique is that it worked better than normal,” says McKinnon. “The short answer is that it worked.”

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